Forming a business partnership


A business partnership is formed as a way to maximize capital availability, get advantageous tax benefits and create an operating structure that is most effective for a particular business model. However, while a business partnership may sometimes offer tax advantages over incorporation (because such a model does not lead to taxation of profits prior to distribution amongst partners), they may leave those individuals within a general partnership more liable than if they were shareholders attached to a corporation.

What is a Business Partner?

Business partners are, quite simply, two or more commercial entities that band together for increased mutual benefit. This could mean a merger between two companies or, in some instances, two individuals. For example, one partner type would be the relationship between suppliers and vendors. Sometimes this arrangement can be held in place by rigid contracts, or it can be more informal, used more for tax and public persona purposes rather than day-to-day operations.

Partnerships are rare in most small businesses. Only about 1 in 20 small business operations involve a partnership, whereas about three-quarters of all small companies act as sole proprietors. Thus, there is obviously a lot of apprehension in these kinds of environments about absorbing another company, individual, or business vision for the future.

Forming a Partnership

In cases where growing companies do decide the next step is a partnership agreement, it's important that all of those involved consider several factors. For one, make sure everyone involved has similar ideas for a business' future. Now, this doesn't mean everyone needs to agree on every single strategy, but if, for instance, one partner thinks a company should aggressively market itself while another does not, conflicts could arise.

In order to minimize these kinds of issues, partners should establish clear roles for one another with partnership agreement forms and documentation, a step that could require the assistance of lawyers. Next, determine ahead of time what the nature of the partnership will be like (for example, 50/50, 30/70, or 33/33/33), or if limited partnership is a viable alternative. And, as in every relationship, keep the lines of communication open by having partner meetings at least once a month.

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